Tag: MSME

MSME Financing

Now about the MSME ecosystem.

The Govt has repeatedly mentioned that we have 65 million MSMEs in Indonesia, and that the MSME are the very backbone of the national economy: they contribute ±61% of GDP and provide ±120 million jobs, nearly the entire labour force. Yet for all their importance, they are treated with something close to neglect by national financial system. While state banks happily court the large corporates and property developers, the millions of small firms that keep the country running receive less than 20% of their credit. And when the MSME secure a loan, they pay dearly for it, at interest rates of 12%–18% per year, even when BI’s rate rests at 5%. A curious kind of financial apartheid: the majority does the heavy lifting, the minority enjoys the cheap capital.

The Minister of Finance, to add insult to injury, has been swifter at taxing MSME than at financing them. Efforts to broaden the tax base focus on micro firms while the big players continue to enjoy exemptions, incentives, and creative loopholes. Programs intended to strengthen domestic small industry, remain piecemeal, minimally supported, and shifted instead to use the MSME data for taxing. The rhetoric is that MSMEs are the backbone of the economy; the practice is that they are milked like docile cows for easy revenue, without being fed the credit that might fatten them into global competitors.

There is surely the KUR program the Govt always mentions, which offers subsidised credit to small businesses. In H1/2025, around Rp 133T was disbursed to some 2.3 million borrowers. That number is impressive on its own, yet it reaches only 3% or 4% of the total MSME population. And the balance is skewed beyond recognition: nearly 1.9 million of those borrowers were micro firms, a modest 159 thousand were small firms, and a mere 16 thousand were so-called ultra-micro. Medium-sized enterprises are excluded entirely, with the optimistic expectation that they will graduate to commercial loans — a graduation ceremony that only rarely takes place.

KUR is not nothing, but neither is it enough. What Indonesia needs is a breakthrough: a national credit guarantee scheme that shares risks between the state and the banks and, in doing so, brings down lending rates while opening the doors of finance to millions who are currently shut out. The idea is simple. If a portion of loans in a defined portfolio go bad, the state-backed guarantor pays part of the loss. With that safety net in place, banks can lend at lower rates and to a wider circle of borrowers.

This is not some wild experiment. South Korea’s KODIT has long guaranteed up to 85% of SME loans; Japan’s municipal credit guarantee corporations have done the same for decades, usually at 80% coverage. The US Small Business Administration runs its own guarantees on 75% to 85% of small business loans. Europe operates portfolio schemes through InvestEU. The lesson is consistent: when governments shoulder part of the risk, banks lend more, charge less, and the fiscal costs remain entirely manageable.

What would this look like in Indonesia? Imagine a scheme supporting 1.5 million loans per year, with an average size of Rp 150 million, creating an annual portfolio of roughly Rp 225T. The guarantor would cover 40% of first losses, capped at 10% of the portfolio to prevent excess. Banks would pay a fee of 1.8% p.a., softened by a small state subsidy of 0.4%. In practice, this would mean loans to small businesses priced at about 3.5% lower than they are today. The expected fiscal cost to the state would be about Rp 2.3T per year, with a guarantor capital buffer of roughly Rp 8T. For the price of a single prestige infrastructure project, the government could transform access to finance for millions of enterprises.

The institutions are already there. Jamkrindo and Askrindo could act as front-line guarantors just like KUR. PII could serve as a backstop. Multilateral lenders such as the World Bank, ADB, or IsDB could add further insurance, while state and private banks would originate the loans. Oversight and enforcement would fall to the Ministry of Finance, Bank Indonesia, and the Financial Services Authority (OJK), with the Ministry of MSME ensuring that outreach truly extends beyond Java and into women-owned and first-time borrowers.

The expected results could be far from trivial. With 1.5 million new loans guaranteed each year, more small firms would cross into the formal economy. Average borrowing rates would fall from the current 12% to 15% into the single digits. Employment would grow by perhaps one million jobs a year, as enterprises invest and expand. GDP growth would tick upward by at least 0.5%. And because borrowers under the scheme must be formally registered, the tax base would widen, meaning the program could ultimately pay for itself.

Indonesia cannot hope to reach sustained 6%–7% growth while its entrepreneurs are trapped in a high-cost credit desert. This lending guarantee program would provide them with the rain they need. Alongside, the state should push forward with digital credit scoring, drawing on tax, e-commerce, and utility data; it should open the way for SME bonds and securitisation; and it should modernise collateral laws so that machinery, vehicles, and inventory can be pledged as security, not only land and buildings.

Without accelarating these programs, Indonesia risks remaining a dual economy: one world of corporates enjoying cheap capital and tax incentives, and another of millions of MSMEs left to carry the country on their backs while paying through the nose for the privilege.

MSME Ecosystem

Since 2016 I have a new role in Telkom Indonesia as the AVP (now Project Leader) of the Industry Synergy. The role of Synergy Department is simply developing the capabilities (mainly digital capabilities) and expanding opportunities of Telkom Group by maximising the collaboration with the industry. As a government policy at that time, the collaborations are prioritised with the state-owned companies (BUMN) in Indonesia. More than three years have passed then. We have changed the Ministry of BUMN, Telkom’s CEO, Telkom’s BOD in charge of Synergy programs, SVP and VP of Synergy, etc. But we are still developing our paradigm of digital synergy, i.e. developing digitally supported economic ecosystems in different sectors.

Using a metaphor from the environment, an innovation ecosystems consists of interdependent parties with different or often competing objectives and concerns, living and growing together in a common digital space, unified using one platform or more to enable them to live better and grow faster. Co-creation, collaboration, and competition are some key activities of the innovation ecosystems.

Last year, the new Minister of BUMN has addressed Telkom Indonesia to develop five ecosystems: Tourism, Agriculture, Logistics, Education, and Healthcare. We even hired a prominent global consultant to help us design the ecosystem. But this February, I requested an approval from the uplinks to add another ecosystem: the MSME ecosystem, to support non-digital micro, small, and medium business enterprises in digital way.

Previously we have had a program called RKB to develop the capability of SMEs in Indonesia. RKBs (BUMN’s creative house) have been established in 245 of 514 cities and regencies in Indonesia. In RKB, BUMNs provide training, consulting, and other facilities to leverage the capabilities of the SMEs in three product categories: culinary, craft, and fashion. But RKBs have failed to attract the SMEs since they do not really improve the sales of the SME products. An MSME ecosystem, on the contrary, should start with MSME commercialisation in mind.

We started with a small design by utilising a multichannel marketing application called SAKOO as our first platform. In March, many cities and locations in Indonesia (and other part of the world) are locked down (until the time I’m writing this post, btw) due to COVID-19 pandemic. We found some contexts for the usecase of the platform. To generate market, we will use BUMNs (and public, using campaigns supported by BUMNs) to create demands for the MSME market. BUMNs may buy the products of the MSMEs for their need, or as an aid to support the communities or health facilities in. Surely we first tried it with Telkom. Telkom has started purchasing MSMEs products using this platform, and has also sent support to communities in Depok.

The Minister of BUMN has a new expert staff: Ms Loto S Ginting — a smart lady working previously as a Director in the Ministry of Finance, managing sovereign bond. Now she advises the Minister of BUMN in the issues of Finance and MSME development. Our BUMN Law (UU 19/2003) mentions indeed that the strategic roles of the BUMNs include providing services for public, counterweight for private business, and support to develop small business and co-operatives. We approached her to discuss this first stage of MSME Ecosystem development program. She enthusiastically accepted the program. In addition, she improve the plan to add B2B transaction facility to the first stage of the program. The transaction data from B2B and B2C are further combined with data taken from e-Procurement systems of the BUMNs to make a dashboard to ensure the increase absorption of MSMEs products and services by the BUMNs. She calls this program PADI UMKM, stands for Pasar Digital UMKM / MSME Digital Market.

Meanwhile, the Covid-19 pandemic has brought the nation into an economic crisis. To survive, MSMEs and their employees need the public involvement. The Minister addressed to rush the MSME platform development. We work with our startup partners: Anchanto, Tees, Payfast, etc to enrich PADI UMKM platform with wider multichannel, logistics management, B2B capability, financing facility, etc. We need to finish it next month (June), so we can start the transaction on July. Eight BUMNs have been selected for pilot project. A new PMO has been assigned to finish this project.

It still felt like a miracle that everything was only in ideation last February, and all activities are carried out during lockdown periods, with all meetings held using vicon, and coordination using whatsapp. Let’s hope we can finish it on June, to support more prosperous small business in Indonesia in long term, or at least, for now, just to have them survive these crises..

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